Final whistle blows on Rangers in ‘big tax case’

HMRC has won its Supreme Court battle with Glasgow Rangers over the club’s use of Employee Benefit Trusts in a verdict that experts believe could have a ‘profound effect’ on similar avoidance schemes. Reacting to the verdict HMRC called for users of similar schemes to come forward.

The long-running saga known as the ‘big tax case’ began when HMRC argued that around £47m paid to Rangers players, managers and directors between 2001 and 2010 in tax-free loans should have been taxed as earnings. The football club disputed this, and several tribunals found in their favour. However, yesterday the Supreme Court’s dismissal of Rangers’ latest appeal brought the curtain down on the case in the Revenue's favour.

A statement accompanying the judgement said: “The sums paid to the trustee of the Principal Trust for a footballer constituted the footballer's earnings. The risk that the trustee might not set up a sub-trust or give a loan of the sub-trust funds to the footballer does not alter the nature of the payments made to the trustee of the Principal Trust.”

Tax liability

The court's decision is unlikely to have any financial impact on Rangers now, as the club went into liquidation in 2012 and is now under new ownership.

The tax liability instead falls on Rangers ‘oldco’, and will be considered by liquidators BDO alongside claims from other creditors from the club's 2012 financial collapse.

Former Rangers chairman Sir David Murray said he was “hugely disappointed” with the verdict.

“The decision will be greeted with dismay by the ordinary creditors of the club, many of which are small businesses, who will now receive a much lower distribution in the liquidation of the club,” said Murray.

EBT schemes ‘do not work’

In a statement released after the judgement David Richardson, director general of HMRC’s customer compliance group, called for companies or groups who have paid staff via EBT to come forward.

“The unanimous decision of the Supreme Court supports our view that Employment Benefit Trust avoidance schemes simply do not work,” said Richardson. “This decision has wide-ranging implications for other avoidance cases and we encourage anyone who’s tried to avoid tax on their earnings to now agree with us the tax owed. HMRC will always challenge contrived arrangements that try to deliver tax advantage never intended by Parliament.”

The ruling gives HMRC the freedom to pursue other football clubs that have operated similar schemes across the UK, and experts predict that there could be dramatic implications both in the world of football and beyond.

Employee Benefit Trusts

The scheme involved tax-free loan payments of up to £47m to various offshore EBTs set up in Jersey for footballers and other staff employed under the umbrella of former Rangers owner Sir David Murray's group of companies.

The EBT payments were agreed in ‘side letters’ – separate agreements to employment contracts – that were hidden from the taxman and the football authorities (these side letters proved to be a key plank of yesterday’s Supreme Court judgement).

The Murray group contended that the payments - made through the now outlawed EBT from 2001 to 2010 - were loans and not taxable income. HMRC argued the payments had technically been ‘earned’ by Rangers employees, but the Revenue lost tax tribunals in 2012 and 2014 and was accused of ‘moving the goalposts’ and applying rules retrospectively.

At the Court of Session in November 2015 judges decided in HMRC’s favour, ruling that the payments made under the Employee Benefit Trusts (EBT) scheme ‘were taxable earnings’. In March last year, Rangers oldco liquidator BDO won the right to appeal against the Court of Session ruling, but yesterday’s verdict seems to have blown the final whistle on the ‘Gers.

‘Profoundly important’

For tax QC Jolyon Maugham the verdict is a profoundly important decision as a matter of principle.

“It confirms something that everyone knows anyway,” Maugham told AccountingWEB, “namely that the courts are now extremely hostile to what they regard as tax avoidance.

“The Supreme Court could have decided this in quite a fact-specific way but they didn’t. There are certainly comments [in the judgement] that will trouble all of those who have entered into EBT arrangements which they haven’t settled.

“HMRC will also be pleased because they’ve established that the desired tax treatment of EBTs is very difficult to obtain. It’s a big blow for those relying on their EBT treatments succeeding.”

“They are overruling Sempra by eliding a properly administered EBT subfund/loan arrangement with an obviously employment-taxable payment to your aunt instead of you at your request (see para 39) [of the judgement], combined with a fudge argument that just because the person is not defined as the employee in s62 that makes all the difference.”

Replies

I totally agree with Jolyon Maugham QC. The SC here have gone well beyond their stretched interpretation of the tax code in the Deutsche Bank and UBS cases and seem to now be saying that the inherent purpose of tax legislation is not to allow tax avoidance schemes to work even where that legislation is not remotely worded as such.

It seems like if there's any type of employee acquiescence in the non-pre-existing right cases re destination of funds then you're now taxed under s62 (unless you fall within one of the three exceptions) whether you get a benefit or not, although it’s clearly context specific to tax schemes (where you’re now stuffed by this “reality” rubbish i.e. you forget about the discretionary trust contingency re exercising discretion etc., and just say the reality is he has his money at the outset when looked at in hindsight, even when he may never get the money), which is a bonkers purposive interpretation of the relevant tax code in my view, caused mainly by their Lordships'/Ladyship's non-sequitur arguments re payments to aunts, as that's fundamentally different e.g. you can sue for breach of non-payment to your aunt but not for breach of a "hope" from an EBT etc. and of course their obvious intense disliking of any tax avoidance scheme.

[Edit] I note the SC has admitted that its decision is essentially the same as that of the CS (I agree there), yet appears to have singularly failed to address the wide criticisms per the links below of that CS decision, which are essentially the same as my above criticisms and I still don’t fully understand how the SC has distinguished Forde and McHugh and as that’s a pension case perhaps it helps re distinguishing EFRBS/QNUPS etc.

No wonder I am confused re F&M. I see that Lord Hodge has there treated a vested interest in a pension (to be taxed in due course like a normal pension) the same as an unvested bonus contingency (even though one is a definite and immediate employee benefit when paid by the employer to the pension fund and the other is just a hope of a potential benefit that may never happen or is defeasible back to the employer or the general employee pool (rather than to an employee relative as in a pension death benefit) like in Edwards v Roberts) per the following from the link below:

“Finally, treating the payment as earnings failed to take into account the existence of the contingency that the fund would be paid to the company director’s wife should he die.”

Also, surely on his own analysis an actual payment to wife (or Aunty Agatha) would make no difference where there is a scheme for them to get the money instead of him and with Forde and McHugh there was of course a prior right and no need for Ramsay, so this Forde and McHugh “contingency” distinction point looks like an inconsistent and contradictory argument for that reason in any event.

isn't the truth that this is simply about a scheme where an employee is 'loaned' money but never has to repay it. (sorry for cutting through all the mumbo jumbo).

I am sure we would all like to pay little or no tax...but I can imagine who will shout the loudest when they find drug pushers hanging around their gated property, or litter building up along their surban cul de sacs.

The above tax QC and me have no inherent objection to the SC doing down the scheme; it's just the very bad (and rather brutal) way that they have done it that's the problem (i.e. doing much violence to the black letter wording of the legislation).

Yes that may all be correct; but one's personal views on tax avoidance schemes should of course be totally beside the point when interpreting legislation, whereas here there seems to have been a rather dramatic glossing of the legislation with such personal (adverse) views (which was absent in the first and upper tier tribunal, except for the dissenting first tier judgment - which was accepted as being substantially wrong re its analysis of EBT loans).

I expect the GAAR panel will be twiddling their thumbs for quite a long time at this rate.

ah yes, those days at work where the boss would let you go early/start late - and then some [***] takes the p1$$ and he has to rewrite his manual so no one can start a minute later or finish a minute earlier and you require clocking cards etc.

The law is an a$$ - you only have to see how many thugs and criminals get away with things. But making a morally correct judgement...I will take that all day long.

I wonder how many 'schemes' Jolyon has advised on in return for some cash....or are we to believe that his view is from a completely impartial (for the greater good) position.

The job of a tax barrister is simply to be a hired gun for his client, whether that's HMRC or the taxpayer. His personal (moral) views are and should be totally besides the point and he must act in the best interest of his client, subject to the usual ethical duties and his duties to the court. Looking at it the other way round, Julian Gosh QC, like all other tax barristers, has advised taxpayers on tax mitigation planning over the years and yet is also happy to act (and win) for HMRC here and that is entirely proper and right and no-one is complaining about that (except Rangers' liquidator possibly).

It was always the 'fiction' that the loan was repayable that annoyed me. Why would any rational employee surrender part of their earnings in return for a replacement repayable loan? Oh, side letters not shown to HMRC mmm. Nods as good as a wink, say no more, say no more squire.

Yes; that's the whole problem (in my view) i.e. tax legislation is now being interpreted purposively in that "bad tax avoidance" (moral) way, which has never been the case (so obviously in my view) before now.

I think this is great news for the below reason, however I do feel sorry for the creditors who are small business who will get less money. Rangers tried to claim they were the old club on football grounds if they are allowed do that then they can pay the debts they owe. The behaviour was beyond contempt. They should not be allowed to a old co when it suits them and New co to wrangle out of the debts.

This is great news. Living in Glasgow when I talk to businesses when I am trying to encourage them to obey the rules, they say well Rangers did not have to pay their taxes became a (New Company) when it suited them , but a (old company ) when it suited. So many business in Glasgow felt why should they pay taxes . This sends a great message and I am happy.

Hi Thanks for the comments. I appreciate it does not effect the laws. Yes it is the morals of it that it annoys me. Rangers set up New Co then on Football grounds claim they are the old CO. In the meantime, genuine small business are left unpaid because the HMRC bill is now bigger.

It may be the law, but morally the whole thing stinks and small businesses are the ones that get hit.

I always faind it strange that people seem to think that somehow the law should have little regard for morals.
Comments such as "I can see that this scheme was morally wrong but it did comply with the letter of the law" should not really be acceptable.

What is the purpose of the law but to provide a legal framework for our morals?

Two wrongs don't make a right.
I am a user of an EBT and set it up solely for asset protection, retirement, and IHT benefit.The former two reasons in the main. I have not benefited personally from the contributions which have been invested by way of loans in to a company (admittedly one I own) to build and develop residential property to earn income from resale and rentals, specifically for my retirement. I am now 60 years of age. I do not occupy any of the properties and all income is properly taxed.
Am I missing the point that paye/nic should properly apply against an 'individual' who benefits in some way from either direct earnings or benefits in kind?
I understand the moral and legal arguments of this case and I am sure if HMRC asked all those who benefited to repay those loans (within a reasonable time limit, not necessarily 5/4/2019 as proposed in the FA 2017, as this may not be practical in all circumstances) they would refuse, as such these payments are most clearly earnings.

In my case I have offered HMRC to put in place legal contracts enforcing repayment of not only the capital and interest element of EBT loans but all profits from the company back to the EBT. Following which retirement benefits to myself from the EBT would naturally be taxable. HMRC have refused and I now expect a 61% (paye/nic) Followers Notice to land on me.

Imagine if you will, you have worked tirelessly for some 40 years, taken risks, provided employment and benefited society in general and have paid tax your whole life and have been a burden to no one. On your 60th birthday you wake up and find officers of your government take 61% of your pension pot leaving you to try and make ends meet, and hand it over to individuals by way of unemployment benefits who have never done a days work in their lives.
This was a cherry picked case not to recover from the footballers or Rangers, as there is no money left, but to screw over hard working individuals who have invested wisely with no voice to argue. Where are those morals I wonder ?

If your company obtained a CT deduction but there wasn't a corresponding IT charge, then forgive me if I say that you and your company did obtain benefits over and above IHT and asset protection. Such aims could have been achieved without using a structure that claimed to give this (unreasonable) tax advantage.

Perhaps this CT/IT advantage wasn't the whole of your aims but it would have been so large that it can't be ignored.

I have some sympathy for people who used in EBT in a less aggressive way than others and relied on their advisers - the level depending on the individual circumstances.

Certainly (and I am no way suggesting this is you) I have seen manycases of very greedy people who are just determined to avoid paying tax on their income no matter what - and EBTs have been just one vehicle they've tried to use. I'm pleased they are getting their comeuppance.

It should never have taken so long though, giving many the chance to live it up, lord it over others and cause honest clients and tax advisers a lot of trouble.

AnnAccountant Sorry did not see this earlier post, but you'll gather there was no CT deduction so other than IHT and asset protection there has been and never was there any intention to gain tax benefit (fair or unfair given the new rule of law on 'aggressive tax avoidance schemes'). I agree greedy and aggressive tax avoiders should be brought to account, even less aggressive tax avoiders should too, but when you have gained nothing and have not tried to gain anything but are treated like a pariah and no one wants to listen or allow you right to adjust your affairs it all seems particularly unfair,

And to add insult to injury, I was also recently on the receiving end of a Family High Court Judge's decision in a short childless marriage who, in awarding 32% of the 'gross' ebt pension pot to the ex, declared (contrary to 5 Supreme Court judge's decision in this case) that "ebt schemes 'do' work, and that any retrospective legislation changes would be against my human rights".

The morals to all hard working people who are left with just 7% of their wealth is (a) don't work hard (b) spend recklessly (c) don't get married and (d) don't trust in the law to protect you !!

I think you miss the point. Loans are (or at least were) NOT taxable as earnings for paye and nic purposes, even loans direct from the company who contributed the cash to an employee benefit trust in the first place. There is however a benefit in kind charge on any unpaid/uncharged interest below the market rate, but not on the capital. So why then is this treated so differently by HMRC just because the loan went via a trust structure? By any stretch of the imagination the treatment for loans from a company to an employee/director should be exactly the same as loan from an ebt, and where HMRC suspect the loan is simply a sham, a reasonable time limit for repayment of the loan should be given to the taxpayer otherwise paye/nic is then charged. That seems eminently reasonable. And case in point was the legislation proposed in the FA 2017 in that ebt loans unrepaid by 5/4/2019 would be taxable as earnings, and whilst this did not give taxpayers a huge amount of time, particularly where the ebt loans went in to long term assets, it did go some way to address this (very serious) issue. The problem created by the courts was that for many many years they simply sided with the taxpayer saying all ebt loans were genuine, now they have done a complete U turn to say all ebt loans are NOT genuine. The courts seem incapable of saying 'some loans are genuine and some are not' and to make a decision firstly that they ALL were genuine and then some 15 to 20 years later say the are ALL not genuine, must leave the courts with egg on its face. It is hardly for accountants to decide whether a loan is genuine or not. A sensible solution in deciding whether loans are indeed genuine would be to start with the security that exists, the interest that is charged and paid, and a 'reasonable' time limit for repayment of the capital.
HMRC quite rightly could not live with the courts' original decision that ALL ebt loans were genuine where clearly Rangers et al abused the system, but neither can the taxpayer live with the courts' new decision ALL ebt loans are now not genuine. What the Supreme Court have done is to leave the taxpayer at the mercy of HMRC, and for them to decide whether a loan is genuine or not and to withdraw their assessment accordingly where the taxpayer offers sufficient proof on the genuine nature of said ebt loan. My experience thus far in dealing with HMRC is they set out with a blinkered view ALL ebt loans are not genuine, and that doesn't give me a lot of confidence of a 'fair' hearing. HMRC are now judge, jury and executioner.

So much for the Magna Carta and Common Law!! It seems 800 years have passed and we (the Common Man) are now back to needing protection from the Government and the Courts rather just the Monarchy. Maybe they'll bring back hanging for debt defaulters to boot !

TMR, the Supreme Court did not find, as you suggest, that the loans were not genuine loans. It was accepted by the lower courts, and accepted by the SC that the amounts were real loans with real legal and economic effects, even if the likely chance of repayment was remote.

The SC's decision was, essentially, that before they entered the EBT the amounts had already been assigned, earmarked, set aside (call it what you will) for the employee. So, the payment to the EBT was just the employer paying the employees' earnings to somebody else.

In terms of loans from a company, if you are a director and shareholder then may I suggest you need to talk to an accountant as you appear to be entirely in the dark about the tax implications of loans from your own company. A loan to a shareholder is subject to a tax charge of 32.5% unless the loan is repaid within 9 months of the end of the accounting period. Such a provision is in place to prevent the obvious tax avoidance that would be available without such a provision (extract all company profits by way of loans that are never repaid, with only CT to pay. Same sort of tax avoidance that EBTs sought to achieve -extract profits without suffering tax on the extraction, whilst also reducing taxable CT profits!)

I agree with you to a point. The problem (and it is a problem) is that EBT contributions to a trust in 'general' (unlike this case which is proving to be a dangerous precedent) are not earmarked for a specific employee, at least all I can say, mine were not. So at that moment in time it is impossible to say to whom the 'loans' (call it what you will) are to be allocated and therefore taxing them under Paye/nic is impossible because no one knows the individuals personal tax position. I appreciate the Rangers case was very different, but that should not mean a universal approach to all schemes. Don't you agree?

I beg to disagree with you on matter of loans to directors/shareholders, what I said was that loans to employees/directors and shareholders from the company were not taxable to paye/nic as earnings. I agree that the company if the loans are not repaid within 9 months of the accounting period end then the company will pay extra Corporation Tax of 32.5% of the loans taken out after 6 April 2016 (or 25% on loans taken before 6 April). This extra 32.5% is repayable to the company by HMRC when the loan is repaid to the company. That's very different from charging up to 60.8% paye and nic on an ebt loan. Again d you not agree?

So if the contributions into the EBT weren't going to go to you then who might they have gone to?

What, you as director and shareholder just transferred loads of money in and left the trustees to decide who might get lent some money? Not a very prudent safeguarding of company assets?

Were you then genuinely surprised when the trustees wrote to you and said "We're going to make you a huge interest free loan for all of it!"

"Fancy that!" I bet you thought.

Since Jersey trustees are in no way rubber-stamp merchants who carry out their paymasters' wishes.

People crying foul on all this just because a document didn't set out who would get loans are deluded. Do they really think just because a document wasn't drawn up that what happened wasn't inevitable and pre-ordained?

Indigance on such grounds just doesn't stand up and it's pleasing to see that the SC eventually got there. It was simple really.

Well number one placing of company funds in to a 'trust' as a safeguard is not illegal and is a wise move under some circumstances when you are no longer in day to day control of your businesses, agreed? I also totally agree with you that trustees are under the considerable influence of the settlor. But my argument is that this is EXACTLY the same as when the funds were in the company.
The shareholder/director has unfettered access to the funds when in the company and whilst not quite the same, I have difficulty arguing that unfettered access doesn't exist when the funds are in a trust, after all if you don't like what the trustees do you can always change them, I agree.

So then if I can lend myself money from my company without HMRC applying paye/nic on that loan why on earth can that not be the same when it is loaned to me (accepting the company the trust loaned the money to, is owned my me) by the trust?

Isn't this a case of simply moving money (which has already been taxed) from the left pocket to the right pocket?
I don't know how many ebt users are in a similar position as myself but I do strongly object to the fact that in my case I have simply moved money from company A to company B via a protective trust. The funds remain either in a corporate or trust structure and not in 'my' personal hands, and have not been squandered but invested. How on earth can it be earnings if I have no personal benefit?

Any company owner can leave profits in a company and not have paye/nic charged until they move those funds in to their personal hands and its their choice when they do that. I have no objections to paye/nic being charged 'when' those funds are in 'my' hands but I fail to see how HMRC are given the right to say when that is just because a different method is used to make an investment/loan.
And for the record, it is not an interest free loan because that is uncommercial. I am just being denied the right to repay those loans along with interest so that HMRC can get 60.8%.

TMR - you say that the amounts were not earmarked for a specific employee, but in an earlier post you indicated that after the payments were made by your company, the EBT loaned amounts to another company you owned. You also say that the EBt was used for asset protection and for IHT reasons. You also say that the court treated the assets in the EBT as yours in divorce proceedings. Though other facts may be in point, that looks awfully like the funds were earmarked for you. If not, why would you allow considerable value to leave your company to be under the control of someone else, or run the risk that they would be paid to someone else. Absent other facts, this looks the amounts were for you, or to benefit your family (now or in the future). I'm not asking you to answer; just asking you to accept the reality.

Whether the amounts extracted from your company and paid to the EBT ought to be treated as earnings, subject to tax /nics will depend on the facts. Did you claim a CT deduction for the EBT contribution and on what basis, are amongst some of the considerations. There is also a clue why PAYE / NICs may be in point and that is the benefit trust was for Employees!

Is it fair; that's a moral question. For a higher rate taxpayer, the rates you quote are the costs of employment (albeit offset by reduction in CT due, though I suspect you may have already claimed that tax saving). Most higher rate employees suffer those rates; it's just the employers' NIC is hidden from them as it doesn't show up as a deduction on their payslips.

Loans to employees would not create a CT deduction; loans to employees would be repayable. Loans to employees would have interest charged and the company would be taxable on that interest. If no interest charged, then employee may suffer tax on benefit of receiving no / low interest loan. None of these extract profits from the company as the amounts are repayable (and usually pretty quickly). Payments to EBTs extract profits from the company. Where this is then matched in short order (within, say 9 months) with a corresponding employment income charge when the employee receives payment or benefit out of the EBT there is not usually a problem.

The problems begin when people use EBTs to extract profits from their company, claim that as a cost to reduce the CT otherwise due and then access or, in reality, control the assets of the trust to benefit themselves or their family without believing that a tax charge should arise.

EBTs have not been outlawed by this judgement; it's just that there use as a method of profit extraction has just got a whole lot harder!

I agree that using EBT's to permanently extract profits to an individual to not pay paye/nic and claim a CT deduction in the company to boot is crass. In my case I did not claim a CT deduction in the company because it was not an earnings payment for my 'personal' benefit. If I own two companies and company A lends company B money (on commercial terms) then there is no charge to tax - agreed ? But if I were to contribute those same funds to a trust for the trust to lend money to company B why should that now result in a 60.8% paye/nic charge?
At the time of making the contribution the law did not say that a contribution to a trust would result in a paye/nic charge and had the law said that, I would be nuts to have made such a transaction.
For the law and HMRC to now retrospectively (nearly ten years later) say that by making such a transaction it is subject to a 60.8% tax charge and not allow me or anyone else using ebt's the right to put back the funds either in to the trust itself or reverse the whole transaction so that it became a direct loan from Company A to Company B to avoid this new charge, is simply wrong.
Every single tax payer in this country is allowed to carry out their affairs to reduce their tax bill, that is their right, and I beg to suggest that I and others are being denied our rights to fairly conduct our affairs. The law and HMRC should allow ebt users a 'reasonable time' to repay their loans not to retrospectively impose a hefty tax on the crass supposition the loans will never be repaid. Indeed isn't that what the FA 2017 was considering? I assume that's now out of the window as HMRC can have a field day without need of that legislation.

At the end of the day, a loan is a loan and that is what this is all about. I am more than happy to repay the loan, the assets exist that support the loan, they are not owned by me personally and can in time be liquidated.

I am sure there are plenty of other ebt users that are in a similar position to myself and just because a few underhand footballers and football club owners tried to get away with it (and indeed have as Rangers nor their players and ex-players will ever have to pay) should not impose unfair taxes on me or anyone else.
I reiterate my earlier argument on the morality angle. Imagine if you will you have a pension fund, I am sure like everyone you do , either personal or company based, you will have invested in that fund over many many years (and I am sure gained legitimate tax benefits as a result), then on the day you retire HMRC turn up at your door and take 60.8% of that fund, even though you have not extracted it for your own personal benefit on day one! That is the exact position I and others are faced with as a result of this judgement.

I agree that using EBT's to permanently extract profits to an individual to not pay paye/nic and claim a CT deduction in the company to boot is crass. In my case I did not claim a CT deduction in the company because it was not an earnings payment for my 'personal' benefit. If I own two companies and company A lends company B money (on commercial terms) then there is no charge to tax - agreed ? But if I were to contribute those same funds to a trust for the trust to lend money to company B why should that now result in a 60.8% paye/nic charge?
At the time of making the contribution the law did not say that a contribution to a trust would result in a paye/nic charge and had the law said that, I would be nuts to have made such a transaction.
For the law and HMRC to now retrospectively (nearly ten years later) say that by making such a transaction it is subject to a 60.8% tax charge and not allow me or anyone else using ebt's the right to put back the funds either in to the trust itself or reverse the whole transaction so that it became a direct loan from Company A to Company B to avoid this new charge, is simply wrong.
Every single tax payer in this country is allowed to carry out their affairs to reduce their tax bill, that is their right, and I beg to suggest that I and others are being denied our rights to fairly conduct our affairs. The law and HMRC should allow ebt users a 'reasonable time' to repay their loans not to retrospectively impose a hefty tax on the crass supposition the loans will never be repaid. Indeed isn't that what the FA 2017 was considering? I assume that's now out of the window as HMRC can have a field day without need of that legislation.

At the end of the day, a loan is a loan and that is what this is all about. I am more than happy to repay the loan, the assets exist that support the loan, they are not owned by me personally and can in time be liquidated.

I am sure there are plenty of other ebt users that are in a similar position to myself and just because a few underhand footballers and football club owners tried to get away with it (and indeed have as Rangers nor their players and ex-players will ever have to pay) should not impose unfair taxes on me or anyone else.
I reiterate my earlier argument on the morality angle. Imagine if you will you have a pension fund, I am sure like everyone you do , either personal or company based, you will have invested in that fund over many many years (and I am sure gained legitimate tax benefits as a result), then on the day you retire HMRC turn up at your door and take 60.8% of that fund, even though you have not extracted it for your own personal benefit on day one! That is the exact position I and others are faced with as a result of this judgement.

I agree with you to a point. The problem (and it is a problem) is that EBT contributions to a trust in 'general' (unlike this case which is proving to be a dangerous precedent) are not earmarked for a specific employee, at least all I can say, mine were not. So at that moment in time it is impossible to say to whom the 'loans' (call it what you will) are to be allocated and therefore taxing them under Paye/nic is impossible because no one knows the individuals personal tax position. I appreciate the Rangers case was very different, but that should not mean a universal approach to all schemes. Don't you agree?

I beg to disagree with you on matter of loans to directors/shareholders, what I said was that loans to employees/directors and shareholders from the company were not taxable to paye/nic as earnings. I agree that the company if the loans are not repaid within 9 months of the accounting period end then the company will pay extra Corporation Tax of 32.5% of the loans taken out after 6 April 2016 (or 25% on loans taken before 6 April). This extra 32.5% is repayable to the company by HMRC when the loan is repaid to the company. That's very different from charging up to 60.8% paye and nic on an ebt loan. Again d you not agree?

Paying 32.5% extra to HMRC is not actually a tax charge either, but an interest free loan until the loan is eventually repaid. I admit I actually don't know if there is a time limit, I don't tink so. So again it;s extremely different to HMRC's treatment of EBT loans. That to me seems somewhat unfair.

With great respect making personal slights to what is a far wider ranging and very dangerous issue than just EBT schemes is I find unprofessional and before judging others you should take a good look at your contribution to this blog. If you don't have something serious to add then may I respectfully suggest you leave it alone.

Users, advisors and providers of many types of schemes now need to be extremely careful.

We have retrospective legislation, we have a U turn law change some 15 years after it was first challenged, we have HMRC unprepared to take Sempra any further which sent out a message in itself, and to wait so long for them to subsequently challenge a far more aggressive tax avoidance scheme leaves everyone in an extremely difficult position for far too long.

But not only that, in the interim it entraps people in to making decisions based on best advice they would otherwise not have made, and therefore end up with a huge and unnecessary tax bill. That cannot be right.

Neither can it be right that HMRC are now given carte blanche to issue Followers Notices which cannot be challenged. The next step I understand the Government are looking to, similar to some other EU countries, will be to allow HMRC to dip their hands in to tax payers pockets extract cash and ask questions later. This can lead to insolvency with no likely come back on HMRC and if you think that is not a very serious matter to debate then again with great respect I think you are very wrong.

There are far too many schemes where the facts are very different to Rangers and my attempt to argue based on my own experience, sadly doesn't appear to have resonated with yourself. Finding myself on the receiving end of all this, your comments are I find unworthy.

From what I understand from the judgement and the likely action of HMRC as a result, we the taxpayer cannot appeal a Follower's Notice as there is no provision to appeal an FN we are only allowed an opportunity to make a representation to HMRC to persuade them to withdraw their notices.

If HMRC wish to be a body that is 'seen' to carry out it's duties fairly to the taxpayer, after all that is I understand one of its founding tenets, then I would welcome David Richardson to appoint an independent body to oversee taxpayers representations. Maybe this forum could work towards some persuasive suggestions to make life that little bit fairer for all us commoners.

TMR, it's not that bad for you. The tax is levied on the amount of the payment in by the company. HMRC may be out of time to raise a s80 determination re the PAYE (4 year time limit and there is a 6 year civil time limit re NIC). Also, there 1st needs to be a valid enquiry or appeal for a Follower Notice. It's possible the April 2019 retrospective change is more of a problem for you if you have an outstanding loan. It will be interesting to see the interaction of that April 2019 legislation with this Rangers decision where HMRC are not time barred to raise an assessment. HMRC are presumably not so egregious as to tax taxpayers twice.

The SC has now ignored decisions of third party trustees and applied a Ramsay anti-avoidance test to them (based on a purposive interpretation of the law applied to the facts, although they did this without proper justification in their decision in my view) and so it extends what they perceive to be an anti-Ramsay device to genuine commercial arrangements, which is wrong in my view and conflicts with all previous Ramsay law concerning decisions by 3P trustees like that in the link below: https://www.kingsleynapley.co.uk/insights/blogs/private-client-law-blog/...

Query why the Rangers case should not be applied to any conduit tax avoidance arrangement e.g. father wants to make £1m gift to son. Father next day is diagnosed terminally ill with 1 year to live. Father leaves the £1m to his wife in his will with instructions to her in a LoW to make a £1m gift to son after father's death, which she duly does. That is surely a tax avoidance scheme (saving £400k) using a Ramsay conduit, yet HMRC don't seem to mind that one.

Thank you Justin, unfortunately HMRC made an in time determination for the large part of the 2008 ebt contribution which we've been arguing incessantly for sometime. HMRC's main argument being "the loans will never be repaid" even though HMRC accept the long term nature of the property development project all the funds were ultimately invested in. The property is now up for sale and only after a successful sale (hopefully at full value and before 5/4/2019) can the loans be physically repaid in cash to the ebt.

For some strange reason though they failed to make a determination on the following 2009 contribution so for a part of it they are out of time. Seems maybe they didn't have enough qualified staff in 2009.

Also interesting is Rangers' potential application to EFRBS (all post April 2006 EBTs are arguably EFRBS unless relevant benefits are carved out). A payment made by an employer to an EFRBS does not give rise to an income tax or NIC charge as confirmed by HMRC manuals as follows:
TSEM 5300
“...Up until 5 April 2006 contributions made by an employer to what was a non-approved retirement benefits scheme (FURBS) were chargeable on employees as employment income. From 6 April 2006 all schemes that were previously unapproved retirement benefit schemes automatically become employer-financed retirement benefit schemes. From 6 April 2006 there is no charge on contributions to an EFRBS made by an employer”
NIM02757
“An employer’s payment into an employer-financed retirement benefits scheme (“EFRBS”; NIM02756) is disregarded in the calculation of earning for Class 1 NICs purposes.” (This is confirmed by Para 8, Part VI, Schedule 3, Social Security (Contributions) Regulations 2001 (SI 2001/1004).

As a result there was no requirement for PAYE Tax or NIC to be withheld on the contributions made to the EFRBS. I cannot immediately see how a loan back to the employee from an EFRBS sub-fund or from the EFRBS principle fund changes things and Rangers can possibly be distinguished as a non-EFRBS EBT arrangement.

That's interesting, thank you again Justin. I'm hoping this blog may raise contact with other ebt users who have largely similar problems as myself, and that we can join forces.
I have asked HMRC time and time again to show me exactly where I have gained personally by avoiding tax, they simply refuse to answer. I just can't see a single penny of benefit.

Originally Holding Company A (owned 100% by myself) loaned money on commercial terms to subsidiary Company B a property development company. Following concern in 2008 over group cross guarantees which involved other foreign trading subsidiaries and the banking crisis, the ebt arrangement was used for mainly asset protection reasons. The loans were repaid by subsidiary B to Holding company A, Company A then made a contribution to the ebt and the ebt made loans to Subsidiary company B again on commercial terms. There was no tax deduction in company A for the contribution and the asset sits on Company A's balance sheet (as an asset not under it's control according to UITF 32).

If I were to now extract funds from company B (either by way of dividend or earnings, and choose not to repay the EBT loans (why I would do this I don't know and it may even be illegal under Corporate Law) then tax will be paid on the extraction. If I repay the ebt loans and extract money personally from the ebt thereafter tax will be paid at that time. Assuming all the money is to be paid to myself which isn't a foregone conclusion to draw in any case. It seems HMRC are saying "aha we can see there are taxed profits sitting in either Company A, the ebt or Company B, but what we plan to do is say the funds sit in personal hands' so hand over 60.8% and do it now.

TMR, you need to check with an EBT tax specialist. You cannot get decent advice from the internet. You can possibly argue that Rangers is distinguishable from your case as it's a post April 2006 arrangement and therefore an EFRBS (but that will not help re April 2019 retrospective tax on loans I expect).

Re EFRBS, you would argue that s394 imposes a tax charge on all relevant benefits which includes capital payments. Therefore, the clear intention of Parliament was to tax all distributions; the implication of s307 is that contributions should be exempt from tax. The charging regime is geared up to tax distributions.